Looking Beyond the Surface: Ten Pieces of Practical Advice on Due Diligence
Ten due diligence practices for would-be funders who are in the process of sizing up a philanthropic opportunity.
Donors should always aim to put their philanthropic capital to the best possible use. However, in the current economic climate, where resources are diminished and society’s problems are all the more pressing, the need for strategic giving is greater than ever. Moreover, the emergence of scandals such as the one underlying Greg Mortensen’s Three Cups of Tea has put the onus on donors to do their homework. With that in mind, I suggest ten due diligence practices for would-be funders who are in the process of sizing up a philanthropic opportunity.
Don’t let dazzling stardom cloud your vision. Though the leader of your potential grantee may be brimming with charisma, be sure to go through all the standard checks that you normally would.
On a related note: Look closely at the leadership. Is the leader’s brilliance a mask for the structural weakness of the organization? As the management guru Peter Drucker once famously advised, “No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings.”
Use multiple sources for your decision-making. Don’t rely on just one set of opinions when forming a view about a nonprofit; carefully consult the whole range of stakeholders with whom they work. Speak with other funders in the same issue area—and not just those who are supporting your potential grantee. Conduct a site visit, since often there is nothing like seeing it for yourself. If that’s not possible, interview staff working at various levels throughout the organization, including the executive director, the project managers, and the board.
Don’t overlook governance. In our recent Think Philanthropy report, “The State of UK Charity Boards (2011),” we contend that an engaged board—with members who have diverse skills and networks, and who exercise full oversight over their organization—are essential to the success of a nonprofit.
Use Web 2.0 and peer review tools. One of the Internet’s most useful features for budding donors is its interactivity—it’s easy to find and share donor experiences with charities and other organizations.
Remember that growth does not mean effectiveness. The mere fact that a charity is growing in staff size and income does not indicate that it is more successfully pursuing its mission. It merely indicates that it is good at fundraising. More money can fuel more marketing prowess, but the key question is whether that extra money fuels more programmatic output.
Consider funding through intermediaries. There are several organisations, such as Global Greengrants, Give2Asia, the African Women’s Development Fund, and innumerable community foundations worldwide, that provide excellent channels for funding projects; they combine a skill for grant-making with on-the-ground knowledge of the area or community to which they are giving.
Make use of the advice of watchdog groups such as Charity Navigator, which provides valuable and often corrective voices in the debate about how to measure the effectiveness of a nonprofit.
Pay close attention to cultural context. The nonprofit that you are looking to fund may be in a country that has different traditions and social conventions than your own. Hugh Davidson, an alumnus of our Philanthropy Workshop programme and a committed funder in India, China, and Vietnam emphasizes the need for donors to take a first-hand look at the nuances they will encounter when funding abroad.
Fund building projects with caution. More often than not, strategic funding encourages the recipient to be self-sufficient and sustainable. Be wary, therefore, of “white elephant” construction projects with grand aims. Look for a coherent and long-term strategy for improving the community around them.
I hope you find these tips helpful as you go about the hard and necessary homework that is due diligence—and I hope that you enjoy your homework.